This man wants to blow up stock exchanges

Just how much of the financial world could new technology disrupt? Patrick Byrne is trying to push the limits. The hard-charging CEO of Overstock.com has become one of the leaders of the movement to use the "blockchain"—the open-source cryptographic code behind Bitcoin—to do far more than run an invented currency.

Last year, Byrne issued the world’s first-ever digital security—Overstock corporate debt—and began creating a new blockchain-based stock exchange to trade it on. Called Medici, the exchange promised a technological revolution that would turn securities trading on its head, replacing the financial clearinghouses that the whole system, and its regulators, depend on.

There's both promise and threat in the blockchain. Its technology shares and checks information across many computers, so advocates say it's a tool for transparency and security. But it also radically decentralizes money, leaving it unclear how blockchain-based markets can be policed under the current system. A year and a half after POLITICO first reported on Byrne's plans and the policy implications of the blockchain, we caught up with Byrne on the progress of the blockchain revolution, the regulatory environment for the technology, and a new idea emanating from the Caribbean.

Q: Last April, you had offered a private security on the blockchain, but you still needed clearance to offer publicly traded stock in purely digital form. How's that going?

A: We did get permission last December from the SEC to issue an Overstock security on this blockchain system we’ve developed. So we’ve been building up the technology but still working with the regulators.

Q: Have you issued that stock on Medici yet?

A:There’s still a lot of coloring to be colored in in that coloring book. I have to be careful about how close I say we’re getting, but I’m very pleased with our progress.

Q: Before the last financial crisis, you feuded very publicly with the SEC, claiming it kowtowed to Wall Street interests. How do you find the agency’s performance when it comes to the blockchain?

A:It’s a much better SEC than it was a decade ago. As a frequent customer, I can vouch for that. My fear of any regulator is that it gets committed to defending the interests of its client industry rather than the public. ... And I have to say, maybe at the beginning of this blockchain work, that that’s the sense I was getting, but in the last year they’ve completely shifted.

Q: What’s changed?

A:What they have come to understand in D.C. is that the blockchain can make impossible a whole bunch of the mischief that they’re in the business of preventing. There are regulators at the SEC and elsewhere who are really excited about the potential of the blockchain. They understand you can build a robust financial system—it would solve all your black swan problems. All kinds of mischief and games that are played in the current system become impossible in this system. ... The people who are concerned with systemic risk are the ones who embrace it.

Q: Is the financial services sector trying to shape the regulatory environment here?

A:That’s absolutely what they’ve tried to do. Goldman Sachs would like there to be a Goldman Sachs blockchain and for the regulators to say, “This is the only one that you’re allowed to use.” The same people who’ve kept D.C. for decades. Everybody understands this is coming, and they’ve absolutely tried to capture the regulatory process.

Q: As of early last year, regulators in the United Kingdom were the most aggressive about promoting blockchain innovation. Is the British government still making that a priority?

A: The U.K. set up a whole bunch of incubators. The London authorities are really trying to get in front of the blockchain. They made their shift about a year earlier than the U.S. authorities did. The British, for all of 2015, were trying to get us. They said we’d get free office space and all these kinds of things. They wanted us so much to have a space there. They are really trying to get a Silicon Valley of Blockchain going there in London, and I’d have to say they’re succeeding. Sweden is trying to do the same thing, but not on the same scale. London may be already the epicenter of this stuff.

Q: Where else are you seeing major blockchain innovation?

A: I’ve been spending a lot of time in the Caribbean in the last six months. The Caribbean understands that it has the chance to leap to the front. In the eyes of those of us who are involved in this, there’s a new age coming to mankind, and it changes 5,000 years of history in a very fundamental way. I’ve been all over meeting government ministers and such in Caribbean financial circles. There’s a small blockchain movement in the Caribbean. They’ve been quite a bit more advanced than you might’ve imagined.

Q: What's been a big milestone in recent months?

A: A huge one—it could shake the world—is down in Barbados. It’s called Bitt.com. We’re taking the blockchain and applying it to Wall Street. They’re taking the blockchain and applying it to central banking. The shot heard round the world was when the first central banker permitted this company to put its fiat money on the blockchain. Digital cash can now exist in Barbados on the blockchain. That’s sort of the Chuck Yeager moment, as far as money goes.

[Overstock.com owns part of Bitt.com]

Q: You’re an outspoken libertarian and Gary Johnson supporter. Would a Hillary Clinton administration or a Donald Trump administration do a better job regulating the blockchain?

A:I’m against those candidates. If I actually had to make a call on that, I do not see Trump as a creature of Wall Street like Hillary is, but I also don’t see him as the kind of guy who would get to understand the arcane details of this to actually make a good call.